BOOM » Topics » Executive Overview

This excerpt taken from the BOOM 10-Q filed May 1, 2009.

Executive Overview

 

Our business is organized into three segments:  Explosive Metalworking, Oilfield Products, and AMK Welding.  For the three months ended March 31, 2009, Explosive Metalworking accounted for 87% of our net sales and 104% of our income from continuing operations before consideration of stock-based compensation expense, which is not allocated to our business segments.  Our Oilfield Products and AMK Welding segments accounted for 8% and 5%, respectively, of our first quarter 2009 net sales.

 

Our net sales for the three months ended March 31, 2009 decreased by $8,634 (14.8%) compared to the first three months of 2008, reflecting year-to-year net sales decreases of $8,172 (15.8%), $416 (9.3%), and $46 (2.0%) for our Explosive Metalworking, Oilfield Products, and AMK Welding segments, respectively.  The sales decrease of approximately $8.6 million includes a sales volume decrease of approximately $5.0 million and an unfavorable foreign exchange translation adjustment of approximately $3.6 million on our European sales relating to the increased value of the U.S. dollar against the Euro.  Income from operations decreased by 11.7% to $8,295 in the first three months of 2009 from $9,390 in the first three months of 2008, reflecting declines in Explosive Metalworking’s, Oilfield Products’, and AMK Welding’s operating income of $570, $129, and $262, respectively, and a $134 increase in stock-based compensation expense.  Our net income decreased by 6.3% to $4,916 for the three months ended March 31, 2009 from $5,245 in the same period of 2008.

 

Impact of Current Economic Situation on the Company

 

The Company was only minimally impacted in 2008 by the global economic slow down.  During the Fourth Quarter of 2008, our sales decreased slightly from historic levels.  As a result of the decline in our Explosive Metalworking backlog from $97,247 at December 31, 2008 to $74,174 at March 31, 2009, we now expect our net consolidated sales in 2009 to decrease approximately 17% to 23% (previous guidance was for a decrease of 12% to 20%) from the amount we achieved in 2008.  In light of the slow down in order inflow that we are experiencing, we have deferred some of our previous planned capital expenditures and are continuing to carefully manage expenses.  We generated cash flow from operations of $3,237 during the first quarter of 2009 and expect to generate positive cash flow from operations during the remaining three quarters of 2009.  As of March 31, 2009, we had over $16,000 in cash and cash equivalents as well as approximately $38,000 of borrowing capacity available under our existing credit facilities.

 

Net sales

 

Explosive Metalworking’s revenues are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative

 

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energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration, and similar industries.  While a large portion of the demand for our clad metal products is driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion of total demand.

 

Oilfield Products’ revenues are generated principally from sales of shaped charges, detonators and detonating cord, and bidirectional booster sand perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

 

AMK Welding’s revenues are generated from welding, heat treatment, and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

 

A significant portion of our revenue is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering products on time, and competing aggressively on the basis of price.

 

Gross profit and cost of products sold

 

Cost of products sold for Explosive Metalworking include the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies, and other manufacturing overhead expenses.

 

Cost of products sold for Oilfield Products include the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products, and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies, and other manufacturing overhead expenses.

 

AMK Welding’s cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services, and other manufacturing overhead expenses.

 

Income taxes

 

Our effective income tax rate decreased to 32.6% for the first three months of 2009 from 36.2% for the same period of 2008.  Income tax provisions on the earnings of Nobelclad, Nitro Metall, DYNAenergetics and our German and Luxembourg holding companies have been provided based upon the respective French, Swedish, German and Luxembourg statutory tax rates.  Going forward, based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our full year 2009 effective tax rate on our projected consolidated pre-tax income to range between 30% and 32%.

 

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Backlog

 

We use backlog as a primary means of measuring the immediate outlook for our business.  We define “backlog” at any given point in time as consisting of all firm, unfulfilled purchase orders and commitments at that time.  Generally speaking, we expect to fill most backlog orders within the following 12 months.  From experience, most firm purchase orders and commitments are realized.

 

Our backlog with respect to the Explosive Metalworking segment decreased to $74,174 at March 31, 2009 from $97,247 at December 31, 2007.  As a result of this significant decline in backlog that reflects a slow down in new order inflow during the first quarter of 2009, we are now forecasting that our consolidated net sales for fiscal 2009 will decline between 17% and 23% from those reported in fiscal 2008.  This anticipated sales decline is attributable to uncertainty associated with current global economic conditions, the slow down we have already seen in the chemical, petrochemical, and hydrometallurgy sectors, and the difficulty in predicting the timing of large orders that we continue to quote.

 

These excerpts taken from the BOOM 10-K filed Mar 13, 2009.

Executive Overview

        Prior to late 2007, our business had been organized into two segments: Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding. On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics. DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell. DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad, and its operating results from the date of acquisition are included in our Explosive Metalworking segment. DYNAwell manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities. DYNAwell's operating results from the date of acquisition are reported under a new segment that we have named "Oilfield Products."

        In 2008, Explosive Metalworking accounted for 84% of our net sales and 91% of our income from continuing operations before consideration of stock-based compensation expense, which is not allocated to our business segments. Our Oilfield Products and AMK Welding segments accounted for 12% and 4%, respectively, of our 2008 net sales. In 2007 and 2006, Explosive Metalworking accounted for more than 94% and 95% of our net sales, respectively, and 97% and 96% of income from continuing operations, respectively.

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        Our 2008 net sales, which include a full year of sales from the acquired DYNAenergetics' businesses, increased by $67,402, or 40.8%, compared to 2007 net sales, which include sales from DYNAenergetics for the period from November 15 through December 31, 2007. The year-to-year consolidated net sales increase reflects sales increases of $39,561 (25.5%) for our Explosive Metalworking segment, $25,288 for our new Oilfield Products segment and $2,553 (35.5%) for AMK Welding. Explosive Metalworking's 2008 and 2007 sales included sales contributions of $30,763 and $4,357, respectively, from DYNAenergetics' explosion clad business. Our income from continuing operations decreased by 2.2% to $38,052 in 2008 from $38,892 in 2007, reflecting a $1,448 decline in Explosive Metalworking's operating income and an increase in stock-based compensation expense of $1,936 that were partially offset by improvements of $1,598 and $946 in the operating income performance of Oilfield Products and AMK Welding, respectively. Reported consolidated operating income for 2008 and for 2007 include amortization expense of $7,382 and $1,191, respectively, relating to purchased intangible assets associated with the acquisition of DYNAenergetics. Our net income decreased by 2.1% to $24,068 in 2008 from $24,587 in 2007.

    Impact of Current Economic Situation on the Company.

        The Company was only minimally impacted in 2008 by the global economic slow down. During the Fourth Quarter of 2008, our sales decreased slightly from historic levels. We expect our net consolidated sales in 2009 to decrease approximately 12% to 20% from the amount we achieved in 2008. In light of this expected slow down, we have deferred some of our previous planned capital expenditures and are continuing to carefully manage expenses. We expect continued strong, although somewhat reduced, cash flow from operations for 2009. As of December 31, 2008, we had over $14 million in cash and cash equivalents as well as approximately $43.8 million of borrowing capacity available under our current credit facilities.

    Net sales

        Explosive Metalworking's revenues are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration, and similar industries. While a large portion of the demand for our clad metal products is driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion of total demand.

        Oilfield Products' revenues are generated principally from sales of shaped charges, detonators and detonating cord, and bidirectional booster sand perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

        AMK Welding's revenues are generated from welding, heat treatment, and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

        A significant portion of our revenue is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing aggressively on the basis of price.

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    Gross profit and cost of products sold

        Cost of products sold for Explosive Metalworking includes the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

        Cost of products sold for Oilfield Products includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

        AMK Welding's cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services and other manufacturing overhead expenses.

    Discontinued operations

        On January 10, 2006, we sold our option rights to purchase the real estate previously used in a discontinued operation to the property owner for $2,300. We recorded a pre-tax gain of approximately $2,197 on this transaction, which was reported as discontinued operations, net of related taxes, in the first quarter of 2006. In December 2006, we sold remaining equipment of those discontinued operations to the company who had previously been leasing that equipment from us. The sale of this equipment resulted in an additional pre-tax gain on discontinued operations of $228. We reported net of tax income of $1,497 for the full year 2006 as a result of these two transactions.

    Income taxes

        Our effective income tax rate decreased to 27.7% in 2008 from 36.5% in 2007. Income tax provisions on the earnings of Nobelclad, Nitro Metall, DYNAenergetics and our German and Luxembourg holding companies have been provided based upon the respective French, Swedish, German and Luxembourg statutory tax rates for the applicable years. Going forward, based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our effective tax rate on our projected consolidated pre-tax income to range between 30% and 32%.

    Backlog

        We use backlog as a primary means of measuring the immediate outlook for our business. We define "backlog" at any given point in time as consisting of all firm, unfulfilled purchase orders and commitments at that time. Generally speaking, we expect to fill most backlog orders within the following 12 months. From experience, most firm purchase orders and commitments are realized.

        Our backlog with respect to the Explosive Metalworking segment decreased to $97,247 at December 31, 2008, from $100,000 at December 31, 2007. Despite only a small decrease in Explosive Metalworking backlog from December 31, 2007 to December 31, 2008, we are forecasting that our consolidated net sales for fiscal 2009 will decline between 12% and 20% from those reported in fiscal 2008. This anticipated sales decline is attributable to uncertainty associated with current global economic conditions, the slowdown we have already seen in the chemical, petrochemical and hydrometallurgy sectors, and the difficulty in predicting the timing of large orders.

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Executive Overview





        Prior to late 2007, our business had been organized into two segments: Explosive Metalworking (which we also refer to as DMC Clad) and
AMK Welding. On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics. DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat
and DYNAwell. DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad, and its operating results from the date of acquisition are included in our Explosive
Metalworking segment. DYNAwell manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities.
DYNAwell's operating results from the date of acquisition are reported under a new segment that we have named "Oilfield Products."



        In
2008, Explosive Metalworking accounted for 84% of our net sales and 91% of our income from continuing operations before consideration of stock-based compensation expense, which is not
allocated to our business segments. Our Oilfield Products and AMK Welding segments accounted for 12% and 4%, respectively, of our 2008 net sales. In 2007 and 2006, Explosive Metalworking accounted for
more than 94% and 95% of our net sales, respectively, and 97% and 96% of income from continuing operations, respectively.



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        Our
2008 net sales, which include a full year of sales from the acquired DYNAenergetics' businesses, increased by $67,402, or 40.8%, compared to 2007 net sales, which include sales from
DYNAenergetics for the period from November 15 through December 31, 2007. The year-to-year consolidated net sales increase reflects sales increases of $39,561
(25.5%) for our Explosive Metalworking segment, $25,288 for our new Oilfield Products segment and $2,553 (35.5%) for AMK Welding. Explosive Metalworking's 2008 and 2007 sales included sales
contributions of $30,763 and $4,357, respectively, from DYNAenergetics' explosion clad business. Our income from continuing operations decreased by 2.2% to $38,052 in 2008 from $38,892 in 2007,
reflecting a $1,448 decline in Explosive Metalworking's operating income and an increase in stock-based
compensation expense of $1,936 that were partially offset by improvements of $1,598 and $946 in the operating income performance of Oilfield Products and AMK Welding, respectively. Reported
consolidated operating income for 2008 and for 2007 include amortization expense of $7,382 and $1,191, respectively, relating to purchased intangible assets associated with the acquisition of
DYNAenergetics. Our net income decreased by 2.1% to $24,068 in 2008 from $24,587 in 2007.





    Impact of Current Economic Situation on the Company.





        The Company was only minimally impacted in 2008 by the global economic slow down. During the Fourth Quarter of 2008, our sales
decreased slightly from historic levels. We expect our net consolidated sales in 2009 to decrease approximately 12% to 20% from the amount we achieved in 2008. In light of this expected slow down, we
have deferred some of our previous planned capital expenditures and are continuing to carefully manage expenses. We expect continued strong, although somewhat reduced, cash flow from operations for
2009. As of December 31, 2008, we had over $14 million in cash and cash equivalents as well as approximately $43.8 million of borrowing capacity available under our current credit
facilities.





    Net sales





        Explosive Metalworking's revenues are generated principally from sales of clad metal plates and sales of transition joints, which are
made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production,
shipbuilding, power generation, industrial refrigeration, and similar industries. While a large portion of the demand for our clad metal products is driven by new plant construction and large plant
expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion
of total demand.



        Oilfield
Products' revenues are generated principally from sales of shaped charges, detonators and detonating cord, and bidirectional booster sand perforating guns to customers who
perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.




        AMK
Welding's revenues are generated from welding, heat treatment, and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in
the power generation industry and aircraft engine markets.



        A
significant portion of our revenue is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, to receive payment
for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through
operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing aggressively on the
basis of price.



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    Gross profit and cost of products sold





        Cost of products sold for Explosive Metalworking includes the cost of metals and alloys used to manufacture clad metal plates, the cost
of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead
expenses.



        Cost
of products sold for Oilfield Products includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns
as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.



        AMK
Welding's cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment,
outside services and other manufacturing overhead expenses.





    Discontinued operations





        On January 10, 2006, we sold our option rights to purchase the real estate previously used in a discontinued operation to the
property owner for $2,300. We recorded a pre-tax gain of approximately $2,197 on this transaction, which was reported as discontinued operations, net of related taxes, in the first quarter
of 2006. In December 2006, we sold remaining equipment of those discontinued operations to the company who had previously been leasing
that equipment from us. The sale of this equipment resulted in an additional pre-tax gain on discontinued operations of $228. We reported net of tax income of $1,497 for the full year 2006
as a result of these two transactions.





    Income taxes





        Our effective income tax rate decreased to 27.7% in 2008 from 36.5% in 2007. Income tax provisions on the earnings of Nobelclad, Nitro
Metall, DYNAenergetics and our German and Luxembourg holding companies have been provided based upon the respective French, Swedish, German and Luxembourg statutory tax rates for the applicable years.
Going forward, based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our effective tax rate on our projected consolidated pre-tax income
to range between 30% and 32%.





    Backlog





        We use backlog as a primary means of measuring the immediate outlook for our business. We define "backlog" at any given point in time
as consisting of all firm, unfulfilled purchase orders and commitments at that time. Generally speaking, we expect to fill most backlog orders within the following 12 months. From experience,
most firm purchase orders and commitments are realized.



        Our
backlog with respect to the Explosive Metalworking segment decreased to $97,247 at December 31, 2008, from $100,000 at December 31, 2007. Despite only a small decrease
in Explosive Metalworking backlog from December 31, 2007 to December 31, 2008, we are forecasting that our consolidated net sales for fiscal 2009 will decline between 12% and 20% from
those reported in fiscal 2008. This anticipated sales decline is attributable to uncertainty associated with current global economic conditions, the slowdown we have already seen in the chemical,
petrochemical and hydrometallurgy sectors, and the difficulty in predicting the timing of large orders.



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This excerpt taken from the BOOM 10-Q filed Oct 31, 2008.

Executive Overview

 

Historically, our business has been organized into two segments:  Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding.  On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics.  DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell.  DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad, and its operating results from the date of acquisition are included in our Explosive Metalworking segment.  DYNAwell manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities.  DYNAwell’s operating results from the date of acquisition are reported under a new segment that we have named “Oilfield Products.”

 

For the nine months ended September 30, 2008, Explosive Metalworking accounted for 85% of our net sales and 91% of our income from operations before consideration of stock-based compensation expense, which is not allocated to our business segments.  Our AMK Welding and Oilfield Products segments accounted for 4% and 11%, respectively, of our year-to-date 2008 net sales.

 

Our net sales for the nine months ended September 30, 2008, which include $44,099 of sales from our recently acquired DYNAenergetics’ businesses, increased by $63,993 (58.2%) compared to the first nine months of 2007, reflecting year-to-year net sales increases of $42,087 (40.0%) and $2,778 (59.0%) for our Explosive Metalworking and AMK Welding segments, respectively, and a sales contribution of $19,128 from our new Oilfield Products segment.  Income from operations increased by 7.5% to $28,901 in the first nine months of 2008 from $26,891 in the first nine months of 2007, reflecting improvements in Explosive Metalworking’s and AMK Welding’s operating income of $1,196 and $1,490, respectively, that were partially offset by a $1,451 increase in stock-based compensation expense.  Our Oilfield Products segment reported operating income of $775 in the first nine months of 2008.  Our net income increased by 5.8% to $18,683 for the nine months ended September 30, 2008 from $17,659 in the same period of 2007.

 

Net sales

 

Explosive Metalworking’s revenues are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and similar industries.  While demand for our clad metal products in the United States is largely driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing and oil refining facilities also account for a significant portion of total demand. In contrast to the U.S. market,

 

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demand for our clad products in Europe and Asia is more dependent on new construction projects, such as the building of new Purified Terephthalic Acid (“PTA”) plants in different parts of the world, including China, and on sales of electrical transition joints that are used in the aluminum production industry.

 

Oilfield Products’ revenues are generated principally from sales of shaped charges, detonators and detonating cord, boosters, and perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

 

AMK Welding’s revenues are generated from welding, heat treatment, and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

 

A significant portion of our revenue is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering products on time, and competing favorably on the basis of price.

 

DMC Clad’s business is cyclical since it is linked to its customers’ end-market activity.  For example, the construction cycle for new manufacturing capacity in the chemical industry has historically been one characterized by significant amplitude.  It is driven both by global economic demand growth and capacity utilization.  As capacity starts to become tight for various chemicals and prices begin to rise, new manufacturing capacity is added in relatively large incremental amounts.

 

Gross profit and cost of products sold

 

Cost of products sold for Explosive Metalworking include the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies, and other manufacturing overhead expenses.

 

Cost of products sold for Oilfield Products include the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products, and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies, and other manufacturing overhead expenses.

 

AMK Welding’s cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services, and other manufacturing overhead expenses.

 

Income taxes

 

Our effective income tax rate decreased to 25.9% for the first nine months of 2008 from 35.7% for the same period of 2007.  Income tax provisions on the earnings of Nobelclad, Nitro Metall, DYNAenergetics and our German and Luxembourg holding companies have been provided based upon the respective French, Swedish, German and Luxembourg statutory tax rates.  Based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our full year 2008 blended effective tax rate on our consolidated pre-tax income to

 

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approximate 27%. We currently expect our blended effective tax rate for 2009 to increase to a range from 31% to 32%.

 

Backlog

 

We use backlog as a primary means of measuring the immediate outlook for our business.  We define “backlog” at any given point in time to consist of all firm, unfulfilled purchase orders and commitments at that time.  Generally speaking, we expect to fill most backlog orders within the following 12 months.  From experience, most firm purchase orders and commitments are realized.  However, since orders may be rescheduled or canceled, and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily indicative of future sales levels.  Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be sure that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon.

 

Our backlog with respect to the Explosive Metalworking segment, which totaled approximately $100,000 at the beginning of 2008, decreased during the current quarter to approximately $98,610 at September 30, 2008 from approximately $104,871 at June 30, 2008.  Approximately $4 million of the backlog reduction from June 30 to September 30 relates to the change in the Euro to U.S. dollar exchange rate as of the respective quarter-end dates.

 

This excerpt taken from the BOOM 10-Q filed Aug 1, 2008.

Executive Overview

 

Historically, our business has been organized into two segments:  Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding.  On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics.  DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell.  DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad and its operating results from the date of acquisition are included in our Explosive Metalworking segment.  DYNAwell manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities.  DYNAwell’s operating results from the date of acquisition are reported under a new segment that we have named “Oilfield Products”.

 

For the six months ended June 30, 2008, Explosive Metalworking accounted for 86% of our net sales and 94% of our income from operations before consideration of stock-based compensation expense, which is not allocated to our business segments.  Our AMK Welding and Oilfield Products segments accounted for 4% and 10%, respectively, of our first half 2008 net sales.

 

Our net sales for the six months ended June 30, 2008, which include $31,722 of sales from our recently acquired DYNAenergetics’ businesses, increased by $54,028 (80.0%) compared to the first six months of 2007, reflecting year-to-year net sales increases of $40,024 (61.9%) and $1,631 (55.6%) for our Explosive Metalworking and AMK Welding segments, respectively, and a sales contribution of $12,373 from our new Oilfield Products segment.  Income from operations increased by 19.7% to $19,528 in the first six months of 2008 from $16,313 in the first six months of 2007, reflecting improvements in Explosive Metalworking’s and AMK Welding’s operating income of $3,249 and $940, respectively, that were partially offset by a $1,024 increase in stock-based compensation expense.  Our Oilfield Products segment reported operating income of $50.  Our net income increased by 8.7% to $11,458 for the six months ended June 30, 2008 from $10,542 in the same period of 2007.

 

Net sales

 

Explosive Metalworking’s net sales are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and similar industries.  While demand for our clad metal products in the United States is largely driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing and oil refining facilities also account for a significant portion of total demand. In contrast to the U.S. market,

 

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demand for our clad products in Europe and Asia is more dependent on new construction projects, such as the building of new Purified Terephthalic Acid (“PTA”) plants in different parts of the world, including China, and on sales of electrical transition joints that are used in the aluminum production industry.

 

Oilfield Products’ net sales are generated principally from sales of shaped charges, detonators and detonating cord, boosters and perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

 

AMK Welding’s net sales are generated from welding, heat treatment and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

 

A significant portion of our net sales is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, and to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing favorably on the basis of price.

 

DMC Clad’s business is cyclical since it is linked to its customers’ end-market activity.  For example, the construction cycle for new manufacturing capacity in the chemical industry has historically been one characterized by significant amplitude.  It is driven both by global economic demand growth and capacity utilization.  As capacity starts to become tight for various chemicals and prices begin to rise, new manufacturing capacity is added in relatively large incremental amounts.

 

Gross profit and cost of products sold

 

Cost of products sold for Explosive Metalworking include the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

 

Cost of products sold for Oilfield Products include the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

 

AMK Welding’s cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services and other manufacturing overhead expenses.

 

Income taxes

 

Our effective income tax rate decreased to 34.3% for the first half of 2008 from 36.7% for the first half of 2007.  Income tax provisions on the earnings of Nobelclad, Nitro Metall, DYNAenergetics and our German and Luxembourg holding companies have been provided based upon the respective French, Swedish, German and Luxembourg statutory tax rates.  Based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our full

 

23



Table of Contents

 

year 2008 blended effective tax rate on our consolidated pre-tax income to range between 32% to 33%.

 

Backlog

 

We use backlog as a primary means of measuring the immediate outlook for our business.  We define “backlog” at any given point in time to consist of all firm, unfulfilled purchase orders and commitments at that time.  Generally speaking, we expect to fill most backlog orders within the following 12 months.  From experience, most firm purchase orders and commitments are realized.  However, since orders may be rescheduled or canceled, and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily indicative of future sales levels.  Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be sure that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon.

 

Our backlog with respect to the Explosive Metalworking segment increased to approximately $104,871 at June 30, 2008 from approximately $102,106 at March 31, 2008 and approximately $100,000 at December 31, 2007.

 

This excerpt taken from the BOOM 10-Q filed May 2, 2008.

Executive Overview

 

Historically, our business has been organized into two segments:  Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding.  On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics.  DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell.  DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad and its operating results from the date of acquisition are included in our Explosive Metalworking segment.  DYNAwell manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities.  DYNAwell’s operating results from the date of acquisition are reported under a new segment that we have named “Oilfield Products”.

 

For the three months ended March 31, 2008, Explosive Metalworking accounted for 88% of our net sales and 99% of our income from operations before consideration of stock-based compensation expense, which is not allocated to our business segments.  Our AMK Welding and Oilfield Products segments accounted for 4% and 8%, respectively, of our first quarter 2008 net sales.

 

Our net sales for the three months ended March 31, 2008, which include $15,194 of sales from our recently acquired DYNAenergetics’ businesses, increased by $25,299 (76.4%) compared to the first three months of 2007, reflecting year-to-year net sales increases of $20,149 (64.0%) and $700 (43.8%) for our Explosive Metalworking and AMK Welding segments, respectively, and a sales contribution of $4,450 from our new Oilfield Products segment.  Income from operations increased by 24.5% to $9,390 in the first three months of 2008 from $7,542 in the first three months of 2007, reflecting improvements in Explosive Metalworking’s and AMK Welding’s operating income of $2,480 and $373, respectively, that were partially offset by an operating loss of $565 that was reported by our Oilfield Products segment and a $440 increase in stock-based compensation expense. Our net income increased by 7.4% to $5,245 for the three months ended March 31, 2008 from $4,882 in the same period of 2007.

 

Net sales

 

Explosive Metalworking’s net sales are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and similar industries.  While demand for our clad metal products in the United States is largely driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing and oil refining facilities also account for a significant portion of total demand. In contrast to the U.S. market,

 

21



 

demand for our clad products in Europe and Asia is more dependent on new construction projects, such as the building of new Purified Terephthalic Acid (“PTA”) plants in different parts of the world, including China, and on sales of electrical transition joints that are used in the aluminum production industry.

 

Oilfield Products’ net sales are generated principally from sales of shaped charges, detonators and detonating cord and bidirectional booster sand perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

 

AMK Welding’s net sales are generated from welding, heat treatment and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

 

A significant portion of our net sales is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, and to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing favorably on the basis of price.

 

DMC Clad’s business is cyclical since it is linked to its customers’ end-market activity.  For example, the construction cycle for new manufacturing capacity in the chemical industry has historically been one characterized by significant amplitude.  It is driven both by global economic demand growth and capacity utilization.  As capacity starts to become tight for various chemicals and prices begin to rise, new manufacturing capacity is added in relatively large incremental amounts.

 

Gross profit and cost of products sold

 

Cost of products sold for Explosive Metalworking include the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

 

Cost of products sold for Oilfield Products include the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

 

AMK Welding’s cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services and other manufacturing overhead expenses.

 

Income taxes

 

Our effective income tax rate decreased to 36.2% for the first three months of 2008 from 36.8% for the first three months of 2007.  Income tax provisions on the earnings of Nobelclad, Nitro Metall and DYNAenergetics have been provided based upon the respective French, Swedish and German statutory tax rates.  Going forward, based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our effective tax rate on our consolidated pre-tax income to range between 36% and 37%.

 

22



 

Backlog

 

We use backlog as a primary means of measuring the immediate outlook for our business.  We define “backlog” at any given point in time to consist of all firm, unfulfilled purchase orders and commitments at that time.  Generally speaking, we expect to fill most backlog orders within the following 12 months.  From experience, most firm purchase orders and commitments are realized.  However, since orders may be rescheduled or canceled, and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily indicative of future sales levels.  Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be sure that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon.

 

Our backlog with respect to the Explosive Metalworking segment increased to approximately $102,106 at March 31, 2008 from approximately $100,000 at December 31, 2007.

 

These excerpts taken from the BOOM 10-K filed Mar 14, 2008.

Executive Overview

        Historically, our business has been organized into two segments: Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding. On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics. DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell. DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad and its operating results from the date of acquisition are included in our Explosive Metalworking segment. DYNAWELL manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities. DYNAwell's operating results from the date of acquisition are reported under a new segment that we have named "Oilfield Products".

        In 2007, Explosive Metalworking accounted for more than 94% of our net sales and 97% of our income from operations of continuing operations before consideration of stock-based compensation expense, which is not allocated to our business segments. In 2006 and 2005, Explosive Metalworking accounted for more than 95% of our net sales and more than 95% of income from operations of continuing operations.

        Our 2007 net sales, which include $6,902 of sales from the newly acquired DYNAenergetics' businesses for the period November 16 through December 31, 2007, increased 45.6% compared to 2006, reflecting year-to-year net sales increases of 43.4% and 40.7% for our Explosive Metalworking and AMK Welding segments, respectively. Explosive Metalworking's 2007 sales included a $4,357 contribution from DYNAenergetics' explosion clad business and our new Oilfield Products segment reported 2007 sales of $2,545. Our income from operations of continuing operations increased 29.2%, to $38,892 in 2007 from $30,103 in 2006, reflecting a $9,297 improvement in Explosive Metalworking's operating income and a $259 improvement in AMK Welding's operating income offset by a small operating loss of $126 reported by Oilfield Products. Income from continuing operations increased 27.6%, to $24,587 in 2007 from $19,267 in 2006. Our net income increased to $24,587 in 2007 from $20,764 in 2006. Our 2006 net income included $1,497 of income from discontinued operations, net of tax, relating to the sale of the Spin Forge real estate option in the first quarter and the sale of leased manufacturing equipment and tooling associated with the Spin Forge business in the fourth quarter. See detailed discussion below under "income from discontinued operations".

    Net sales

        Explosive Metalworking's net sales are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and similar industries. While demand for our clad metal products in the United States is largely driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing and oil refining facilities also account for a significant portion of total demand. In contrast to the U.S. market, demand for our clad products in Europe and Asia is more dependent on new construction projects, such as the building of new Purified Terephthalic Acid ("PTA") plants in different parts of the world, including China, and on sales of electrical transition joints that are used in the aluminum production industry.

        Oilfield Products' net sales are generated principally from sales of shaped charges, detonators and detonating cord and bidirectional booster sand perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

27


        AMK Welding's net sales are generated from welding, heat treatment and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

        A significant portion of our net sales is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, and to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing favorably on the basis of price.

        DMC Clad's business is cyclical since it is linked to its customers' end-market activity. For example, the construction cycle for new manufacturing capacity in the chemical industry has historically been one characterized by significant amplitude. It is driven both by global economic demand growth and capacity utilization. As capacity starts to become tight for various chemicals and prices begin to rise, new manufacturing capacity is added in relatively large incremental amounts.

    Gross profit and cost of products sold

        Cost of products sold for Explosive Metalworking include the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

        Cost of products sold for Oilfield Products include the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

        AMK Welding's cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services and other manufacturing overhead expenses.

    Discontinued operations

        In September 2004, we completed the sale of our Spin Forge division and recorded a loss from discontinued operations of $1,570, net of taxes, including a net of tax operating loss of $783 and a net of tax loss on the divesture transactions of $787. On January 10, 2006, we sold our option rights to purchase the Spin Forge real estate to the property owner for $2,300. We recorded a pre-tax gain of approximately $2,197 on this transaction, which was reported as discontinued operations, net of related taxes, in the first quarter of 2006. In December 2006, we sold the Spin Forge equipment to the buyer of that division who had previously been leasing that equipment from us. The sale of this equipment resulted in an additional pre-tax gain on discontinued operations of $228. We reported a net of tax income of $1,497 for the full year 2006 as a result of these two transactions.

    Income taxes

        Our effective income tax rate decreased to 36.5% in 2007 from 37.1% in 2006. Income tax provisions on the earnings of Nobelclad, Nitro Metall and DYNAenergetics have been provided based upon the respective French, Swedish and German statutory tax rates for the applicable years. Going forward, based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our effective tax rate on our consolidated pre-tax income to range between 36% and 37%.

28


    Backlog

        We use backlog as a primary means of measuring the immediate outlook for our business. We define "backlog" at any given point in time to consist of all firm, unfulfilled purchase orders and commitments at that time. Generally speaking, we expect to fill most backlog orders within the following 12 months. From experience, most firm purchase orders and commitments are realized. However, since orders may be rescheduled or canceled, and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily indicative of future sales levels. Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be sure that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon.

        Our backlog with respect to the Explosive Metalworking segment increased to approximately $100,000 at December 31, 2007, including $21,500 of backlog for the recently acquired DYNAenergetics' clad business, from approximately $68,800 at December 31, 2006 and $42,000 at December 31, 2005.

Executive Overview





        Historically, our business has been organized into two segments: Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding. On
November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics. DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell.
DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad and its operating results from the date of acquisition are included in our Explosive Metalworking
segment. DYNAWELL manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities. DYNAwell's
operating results from the date of acquisition are reported under a new segment that we have named "Oilfield Products".



        In
2007, Explosive Metalworking accounted for more than 94% of our net sales and 97% of our income from operations of continuing operations before consideration of stock-based
compensation expense, which is not allocated to our business segments. In 2006 and 2005, Explosive Metalworking accounted for more than 95% of our net sales and more than 95% of income from operations
of continuing operations.



        Our
2007 net sales, which include $6,902 of sales from the newly acquired DYNAenergetics' businesses for the period November 16 through December 31, 2007, increased 45.6%
compared to 2006, reflecting year-to-year net sales increases of 43.4% and 40.7% for our Explosive Metalworking and AMK Welding segments, respectively. Explosive Metalworking's
2007 sales included a $4,357 contribution from DYNAenergetics' explosion clad business and our new Oilfield Products segment reported 2007 sales of $2,545. Our income from operations of continuing
operations increased 29.2%, to $38,892 in 2007 from $30,103 in 2006, reflecting a $9,297 improvement in Explosive Metalworking's operating income and a $259 improvement in AMK Welding's operating
income offset by a small operating loss of $126 reported by Oilfield Products. Income from continuing operations increased 27.6%, to $24,587 in 2007 from $19,267 in 2006. Our net income increased to
$24,587 in 2007 from $20,764 in 2006. Our 2006 net income included $1,497 of income from discontinued operations, net of tax, relating to the sale of the Spin Forge real estate option in the first
quarter and the sale of leased manufacturing equipment and tooling associated with the Spin Forge business in the fourth quarter. See detailed discussion below under "income from discontinued
operations".





    Net sales





        Explosive Metalworking's net sales are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to
customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation,
industrial refrigeration and similar industries. While demand for our clad metal products in the United States is largely driven by new plant construction and large plant expansion projects,
maintenance and retrofit projects at existing chemical processing, petrochemical processing and oil refining facilities also account for a significant portion of total demand. In contrast to the U.S.
market, demand for our clad products in Europe and Asia is more dependent on new construction projects, such as the building of new Purified Terephthalic Acid ("PTA") plants in different parts of the
world, including China, and on sales of electrical transition joints that are used in the aluminum production industry.



        Oilfield
Products' net sales are generated principally from sales of shaped charges, detonators and detonating cord and bidirectional booster sand perforating guns to customers who
perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.



27









        AMK
Welding's net sales are generated from welding, heat treatment and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in
the power generation industry and aircraft engine markets.



        A
significant portion of our net sales is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, and to receive
payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively
through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing favorably on
the basis of price.



        DMC
Clad's business is cyclical since it is linked to its customers' end-market activity. For example, the construction cycle for new manufacturing capacity in the chemical
industry has historically been one characterized by significant amplitude. It is driven both by global economic demand growth and capacity utilization. As capacity starts to become tight for various
chemicals and prices begin to rise, new manufacturing capacity is added in relatively large incremental amounts.





    Gross profit and cost of products sold





        Cost of products sold for Explosive Metalworking include the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee
compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.




        Cost
of products sold for Oilfield Products include the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as
well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.



        AMK
Welding's cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment,
outside services and other manufacturing overhead expenses.





    Discontinued operations





        In September 2004, we completed the sale of our Spin Forge division and recorded a loss from discontinued operations of $1,570, net of taxes, including a net of
tax operating loss of $783 and a net of tax loss on the divesture transactions of $787. On January 10, 2006, we sold our option rights to purchase the Spin Forge real estate to the property
owner for $2,300. We recorded a pre-tax gain of approximately $2,197 on this transaction, which was reported as discontinued operations, net of related taxes, in the first quarter of 2006.
In December 2006, we sold the Spin Forge equipment to the buyer of that division who had previously been leasing that equipment from us. The sale of this equipment resulted in an additional
pre-tax gain on discontinued operations of $228. We reported a net of tax income of $1,497 for the full year 2006 as a result of these two transactions.





    Income taxes





        Our effective income tax rate decreased to 36.5% in 2007 from 37.1% in 2006. Income tax provisions on the earnings of Nobelclad, Nitro Metall and DYNAenergetics
have been provided based upon the
respective French, Swedish and German statutory tax rates for the applicable years. Going forward, based upon existing tax regulations and current federal, state and foreign statutory tax rates, we
expect our effective tax rate on our consolidated pre-tax income to range between 36% and 37%.



28










    Backlog





        We use backlog as a primary means of measuring the immediate outlook for our business. We define "backlog" at any given point in time to consist of all firm,
unfulfilled purchase orders and commitments at that time. Generally speaking, we expect to fill most backlog orders within the following 12 months. From experience, most firm purchase orders
and commitments are realized. However, since orders may be rescheduled or canceled, and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily
indicative of future sales levels. Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be
sure that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon.



        Our
backlog with respect to the Explosive Metalworking segment increased to approximately $100,000 at December 31, 2007, including $21,500 of backlog for the recently acquired
DYNAenergetics' clad business, from approximately $68,800 at December 31, 2006 and $42,000 at December 31, 2005.





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